What does cash back from a auto dealership mean?

Answer 1

Mike Hunter More options Mar 23, 11:46 am Newsgroups: alt.autos.gm, alt.autos.toyota, alt.autos.ford, misc.consumers, soc.culture.usa

From: "Mike Hunter"

Date: Mon, 23 Mar 2009 14:46:13 -0400

Local: Mon, Mar 23 2009 11:46 am

Subject: Re: "CASH BACK" -- What Does This Mean In Auto Sales Talk? Does The Buyer Receive Actual Wallet-Ready Bills -- Or Is "Cash Back" Just Code For Cost Reduction?

"Cash back," or a manufactures rebate, is a result of a mistake Chrysler

made back in the late seventies. Chrysler in a effort to more inventory

near the end of the model year, advertise that it was reducing the MSRP of

some of their best selling lines by $1,000 on vehicle which at the time were

selling under $10,000. It turned out to be a terrible move. I devalued

every car they had sold prier to that time and lowered the value of late

model used cars back as far as five years or more.

The are three prices when it comes to new vehicle, MSRP, Invoice and Net

invoice. "Net Invoice" is the Invoice price after the holdback is taken

back. Hold back is paid quarterly to dealerships.

Generally the hold back is 3% of the invoice. Lets say a decent dealership

sell 500 vehicles a month. In three months he will have a credit on 1,500

vehicles of $X in hold back, $X in warranty reimbursement and OWE the

manufacturer, and their credit arm, $X in dis-allowed warranty claims,

special tolls and floor plan interest. The manufactures will send the

dealership a check for the difference or a bill as the case may be.

The "Invoice" is the amount the dealership actually pays the manufacturer,

when they sell the car. MSRP is self-explanatory and is generally 12% to

16% above the Invoice price Generally many dealerships, particularly

import brands, offer their vehicles they sell for MORE than MSRP by adding

dealer installed high profit options.

When dealer "negotiates" a selling price they "give away" the profit on the

add-ons first and try to get MSRP. If a deal gets too tight they will give

away some of the difference between the MSRP and the Invoice price or in

extreme cases will give up down to the Invoice price IF one has a trade off

from which they can get some of the giveaway back.

When the manufacturers offers a rebate they can more easily do so because

the manufactures rebate given to the dealership by the customers can then be

used to pay the Invoice, thus reducing his actual cost by the amount of the

rebate. A buyer can choose to receive the rebate from the manufacturer but

he will pay that much more to drive home the car and will be taxed on that

higher amount. If they do they will pay higher interest on the greater

amount of their load and depending on where one lives, and their situation

with the AMT, they will end up paying income taxes on that amount as well

Let's say a vehicle has an MSRP of $25,000 and an Invoice price of say

$21,000. The dealer makes a profit of any amount that is over 21K. The

car you want has an Add-0n package of $2,500 a typical amount or a selling

price of $27,500.

Let say they offer to sell you the car at $23,000 and you agree to apply

$4,000 rebate to the sale. Your trade has an NADA wholesale value of

$10,000. He says I will give you $7,000 which is $3,000 under wholesale.

He shows you the invoice and says I must have $21,000 to pay for the new car

and you are only giving me $19,000 in cash and trade. I think you will

agree it if fair to make a $1,000 profit on a $27,500 car. You go home

happy because you saved $10,000. The dealership makes a gross profit of

$9,000. He then makes another $3,000, when he sell you car for $13,000.

Unless he takes another trade on your car for less than wholesale, as well.

Too cap it off, he will make another 1% to 2% off the finance charges you

will pay over four years ;)

"jesus'sbuttboy" wrote in message

news:fdc731a7-dca6-4d02-bdf4-5be2f7df42d3@c11g2000yqj.googlegroups.com...

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>I can't believe that a dealer would give a buyer say, $4,000 in hard

> cash, AFTER the sales purchase agreement is signed and finalized.

> Anyone ever gotten such a deal?

> http://www.nytimes.com/2003/10/02/business/buyers-cash-in-on-offers-t...

Canuck57 More options Mar 23, 12:42 pmNewsgroups: alt.autos.gm, alt.autos.toyota, alt.autos.ford, misc.consumers

From: "Canuck57"

Date: Mon, 23 Mar 2009 13:42:16 -0600

Local: Mon, Mar 23 2009 12:42 pm

Subject: Re: "CASH BACK" -- What Does This Mean In Auto Sales Talk? Does The Buyer Receive Actual Wallet-Ready Bills -- Or Is "Cash Back" Just Code For Cost Reduction?

"Mike Hunter" wrote in message

news:49c7d8ed$0$12295$ce5e7886@news-radius.ptd.net...

> Let say they offer to sell you the car at $23,000 and you agree to apply

> $4,000 rebate to the sale. Your trade has an NADA wholesale value of

> $10,000. He says I will give you $7,000 which is $3,000 under wholesale.

> He shows you the invoice and says I must have $21,000 to pay for the new

> car and you are only giving me $19,000 in cash and trade. I think you

> will agree it if fair to make a $1,000 profit on a $27,500 car. You go

> home happy because you saved $10,000. The dealership makes a gross

> profit of $9,000. He then makes another $3,000, when he sell you car for

> $13,000. Unless he takes another trade on your car for less than

> wholesale, as well. Too cap it off, he will make another 1% to 2% off the

> finance charges you will pay over four years ;)

And that is why the first thing you should ask the sales person is where is

the invoice, then pay 10% or less than that. I haven't paid above or near

invoice since 1989. With the kickbacks, MSRP and invoice are sucker plays.

Oh, they will hee and haw, but it is your money you save by preparing to

walk.

Jeff More options Mar 23, 7:06 pmNewsgroups: alt.autos.gm, alt.autos.toyota, alt.autos.ford, misc.consumers, soc.culture.usa

From: Jeff

Date: Mon, 23 Mar 2009 19:06:37 -0700 (PDT)

Local: Mon, Mar 23 2009 7:06 pm

Subject: Re: "CASH BACK" -- What Does This Mean In Auto Sales Talk? Does The Buyer Receive Actual Wallet-Ready Bills -- Or Is "Cash Back" Just Code For Cost Reduction?

In some states, the rebate is taxed, too. SO if you buy a $23,000 car

with a rebate of $3,000, you pay tax on the $23,000, not $20,000.

Michigan is one such state, IIRC.

SMS

More options Mar 24, 2:48 pmNewsgroups: alt.autos.gm, alt.autos.toyota, alt.autos.ford, misc.consumers

From: SMS

Date: Tue, 24 Mar 2009 14:48:00 -0700

Subject: Re: "CASH BACK" -- What Does This Mean In Auto Sales Talk? Does The Buyer Receive Actual Wallet-Ready Bills -- Or Is "Cash Back" Just Code For Cost Reduction?

Canuck57 wrote:

> And that is why the first thing you should ask the sales person is where is

> the invoice, then pay 10% or less than that.

I would not depend on the sales person to show you the actual invoice,

this information is easily available on-line. If they are too eager to

show you the invoice, either it's not the real invoice, or the dealer is

receiving huge incentives from the factory making selling at invoice or

slightly below a very profitable deal indeed.

10% under published invoice was a reasonable estimate of what to pay in

normal times, but these days with very high factory to dealer and

factory to buyer incentives, it may result in much too high of a price

being paid. I.e., nowadays you routinely see dealer sales even on

popular vehicles, "all at this price" (rather than "one at this price")

where the price is way below 10% under invoice.

It's more important to find out the dealer cost than the invoice price,

since they are very different. Take the invoice price, subtract the

holdback and other manufacturer kickbacks, and subtract the factory to

dealer incentives (which can be difficult to uncover since these are not

normally made public).